SENATE BILL REPORT
SSB 5445
This analysis was prepared by non-partisan legislative staff for the use of legislative members in
their deliberations. This analysis is not a part of the legislation nor does it constitute a
statement of legislative intent.
As Passed Senate, March 13, 2007
Title: An act relating to cost-reimbursement agreements.
Brief Description: Regarding cost-reimbursement agreements.
Sponsors: Senate Committee on Water, Energy & Telecommunications (originally sponsored by Senators Jacobsen, Morton and Rasmussen).
Brief History:
Committee Activity: Water, Energy & Telecommunications: 1/26/07, 2/27/07 [DPS].
Passed Senate: 3/13/07, 46-0.
SENATE COMMITTEE ON WATER, ENERGY & TELECOMMUNICATIONS
Majority Report: That Substitute Senate Bill No. 5445 be substituted therefor, and the substitute bill do pass.Signed by Senators Poulsen, Chair; Rockefeller, Vice Chair; Honeyford, Ranking Minority Member; Delvin, Fraser, Holmquist, Marr, Morton, Oemig, Pridemore and Regala.
Staff: William Bridges (786-7424)
Background: The Department of Natural Resources (Department) issues permits for oil and gas
exploration in Washington. The cost of a permit is set in statute and ranges from $250 to $1,000
depending on the depth of the drilling. Revenues from permits go into the State General Fund.
The Department may seek cost reimbursements for pre-drilling regulatory activities, such as the
preparation of environmental impact statements. But the Department lacks such authority for
post-discovery activities, such as engineering analysis for reservoir size; locating and spacing of
wells and operations; and reclamation and clean up of all well sites. Consequently, the
Department's post-discovery regulatory activities have been funded out the State General Fund,
which were adequate when annual drilling applications numbered one or two a year.
Renewed exploration and drilling over the past year has increased. The Department reports that
it is currently processing 14 applications for drilling permits, with at least five more expected
before the end of the fiscal year. Three wells are actively drilling, and another five to ten are
expected to be drilled or drilling before the end of fiscal year 2007. Lacking the authority for
post-discovery cost reimbursements, and without adequate state general fund monies, the
Department asserts it can no longer adequately regulate post-discovery drilling activities.
Mindful of the increase in drilling applications, in 2006 the Legislature directed the Department
to study and to make recommendations improving the existing legislation affecting the oil and
natural gas industry. The study results were submitted to the Legislature in January 2007.
Among the recommendations was one authorizing cost-reimbursement agreements for all the
stages of oil and gas drilling, from exploration through production.
Summary of Substitute Bill: The Department of Natural Resources may enter into cost reimbursement agreements for activities needed to establish oil and gas development units and pooling agreements, including monitoring for permit compliance. The current prohibition that the Department may not enter into cost reimbursement agreements after July 1, 2007, is removed.
Appropriation: None.
Fiscal Note: Not requested.
Committee/Commission/Task Force Created: No.
Effective Date: Ninety days after adjournment of session in which bill is passed.
Staff Summary of Public Testimony on Original Bill: PRO: The Department of Natural Resources has no funding to administer the oil and gas development program. This was not a problem in the past because there was little drilling activity. But now drilling activity has increased. Shell Oil participated in the interim group that recommended this cost-reimbursement approach, which is similar to other programs.
Persons Testifying: PRO: Steve Gano, Shell Oil; Dave Norman, Department of Natural Resources.